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Top 10 Low Price Stocks To Own Right Now

Citigroup’s Alastair Syme and team argue that the earnings from big oil companies like Chevron (CVX), Total (TOT) and Royal Dutch Shell (RDS.A) will be bad…real bad. But that won’t stop the stocks from outperforming. They explain why:

Bloomberg News

Negative headlines, positive performance: We expect the majority of Big Oil companies to post negative 1Q16 earnings, a brutal headline, but one that clearly reflects the impact of cyclical oil price lows this quarter. The outlook can improve. Our positive thesis on the Big Oil group reflects a belief that the market still only discounts modest oil recovery we think c. $40/bbl is imbedded in valuations and a view that the group can drive self-help gains to boost profitability even in a low price environment. Signs of this self-help should be evident in 1Q operating performance: we expect to see the delivery of top-line growth (taking market share versus broader industry) and a continued reduction in operating costs, building on substantial cost-cutting through 2015.

Top 10 Low Price Stocks To Own Right Now: Cullen/Frost Bankers, Inc.(CFR)

Advisors’ Opinion:

  • [By WWW.GURUFOCUS.COM]

    For the details of Wintergreen Fund’s stock buys and sells, go to www.gurufocus.com/StockBuy.php?GuruName=Wintergreen+Fund

    These are the top 5 holdings of Wintergreen FundReynolds American Inc (RAI) – 1,643,159 shares, 24.5% of the total portfolio. Consolidated-Tomoka Land Co (CTO) – 1,232,334 shares, 15.61% of the total portfolio. British American Tobacco PLC (BATS) – 782,405 shares, 12.29% of the total portfolio. Cie Financiere Richemont SA (CFR) – 286,053 shares, 5.35% of the total portfolio. Shares reduced by 15.57%Altria Group Inc (MO) – 305,421

  • [By Lee Jackson]

    These companies also reported insider selling last week: Aetna Inc. (NYSE: AET), Cullen/Frost Bankers Inc. (NYSE: CFR), Rockwell Automation Inc. (NYSE: ROK), Stamps.com (NASDAQ: STMP) and Western Alliance Bancorporation (NYSE: WAL).

Top 10 Low Price Stocks To Own Right Now: Ingles Markets Incorporated(IMKTA)

Advisors’ Opinion:

  • [By WWW.THESTREET.COM]

    Not all grocers will suffer from Amazon’s growing reach, but those who sell to high-income customers in the top 25 U.S. markets may see their business erode. Among those names include Costco (COST) , Trader Joe’s and Whole Foods (WFM) , which have the most to lose according to Barclays. On the other hand, Walmart (WMT) , Sam’s Club (owned by Walmart) and Ingle’s Markets (IMKTA)  have the least to lose.

Top 10 Low Price Stocks To Own Right Now: Invesco Municipal Opportunity Trust(VMO)

Advisors’ Opinion:

  • [By Logan Wallace]

    Invesco Van Kampen Municpl Opprtnty Trst (NYSE:VMO) declared a monthly dividend on Tuesday, April 3rd, Wall Street Journal reports. Shareholders of record on Tuesday, April 17th will be paid a dividend of 0.0554 per share by the investment management company on Monday, April 30th. This represents a $0.66 dividend on an annualized basis and a dividend yield of 5.66%. The ex-dividend date of this dividend is Monday, April 16th.

Top 10 Low Price Stocks To Own Right Now: MarketAxess Holdings, Inc.(MKTX)

Advisors’ Opinion:

  • [By ]

    This is why I’m bullish on a company that promises to mitigate the liquidity issues facing the bond market. The company is MarketAxess (Nasdaq: MKTX).

  • [By Joe Tenebruso]

    MarketAxessHoldings (NASDAQ:MKTX)reported first-quarter results on April 26. The electronic trading platform is enjoying strong gains in revenue and profits as it continues to take share of the massive global fixed-income market.

Top 10 Low Price Stocks To Own Right Now: Targa Resources, Inc.(TRGP)

Advisors’ Opinion:

  • [By Lisa Levin]

    In trading on Tuesday, utilities shares fell by 0.37 percent. Meanwhile, top losers in the sector included Targa Resources Corp (NYSE: TRGP), down 3 percent, and FirstEnergy Corp. (NYSE: FE), down 2 percent.

Top 10 Low Price Stocks To Own Right Now: Christopher & Banks Corporation(CBK)

Advisors’ Opinion:

  • [By Lisa Levin]

    Shares of Christopher & Banks Corporation (NYSE: CBK) got a boost, shooting up 24 percent to $1.50 after the company reported strong preliminary revenue for the third quarter.

  • [By Lisa Levin]

    Christopher & Banks Corporation (NYSE: CBK) shares were also up, gaining 40 percent to $2.64. Christopher & Banks reported a Q4 loss of $0.24 per share on revenue of $94.6 million. The company projects Q1 revenue of $93 million to $98 million.

Top 10 Low Price Stocks To Own Right Now: DRDGOLD Limited(DRD)

Advisors’ Opinion:

  • [By Lisa Levin]

    Tuesday afternoon, the basic materials sector proved to be a source of strength for the market. Leading the sector was strength from Endeavour Silver Corp (NYSE: EXK) and DRDGOLD Ltd. (ADR) (NYSE: DRD).

  • [By Alex McGuire]

    This list ranks gold dividend stocks in the mining sector by dividend yield. And it also includes one of our top gold stock recommendations of 2017…

    Gold Dividend Stock Share Price Year-to-Date Performance Dividend Yield (as of June 30)
    DRDGOLD Ltd. (NYSE ADR: DRD) $3.19 -39.7% 10.24%
    Sibanye Gold Ltd. (NYSE ADR: SBGL) $4.70 -33.4% 5.98%
    Harmony Gold Mining Co. (NYSE ADR: HMY) $1.62 -26.7% 4.56%
    Gold Fields Limited (NYSE ADR: GFI) $3.41 +13.3% 2.73%
    Randgold Resources Ltd. (Nasdaq ADR: GOLD) $87.68 +14.9% 1.89%
    Franco Nevada Corp. (NYSE: FNV) $72.39 +21.1% 1.27%
    Royal Gold Inc. (Nasdaq: RGLD) $76.85 +21.3% 1.25%
    Eldorado Gold Corp. (NYSE: EGO) $2.58 -19.9% 1.16%
    Barrick Gold Corp. (NYSE: ABX) $15.90 -0.5% 0.75%
    Goldcorp Inc. (NYSE: GG) $13.02 -4.4% 0.62%

    Six of the 10 gold stocks listed above have posted negative returns so far in 2017. The main reason behind their losses has to do with gold price volatility.

  • [By Lisa Levin]

    In trading on Wednesday, basic materials shares fell by 1.27 percent. Meanwhile, top losers in the sector included McEwen Mining Inc (NYSE: MUX), down 12 percent, and DRDGOLD Ltd. (ADR) (NYSE: DRD), down 7 percent.

Top 10 Low Price Stocks To Own Right Now: General Motors Company(GM)

Advisors’ Opinion:

  • [By Paul Ausick]

    General Motors Co. (NYSE: GM) on Thursday posted U.S. February sales of 220,905 vehicles, a decrease of 6.9% compared with February 2017. Retail deliveries plummeted 10.5% in the month to 168,971 units and fleet deliveries rose to 23.5% for the month, up three percentage points year over year.

  • [By Garrett Baldwin]

    U.S. automotive stocks moved higher after China’s announcement on lowering vehicle tariffs. Shares of Ford Motor Co.(NYSE: F), General Motors Co. (NYSE: GM), and Fiat Chrysler Automobiles NV(Nasdaq: FCAU) all rallied more than 2% in pre-market hours. Markets will be looking for answers in a major shakeup that occurred during the later part of the trading session on Monday. The FBI raided U.S. President Donald Trump’s personal lawyer’s office in Manhattan. According to NBC News, the FBI is seeking any evidence tied to a $130,000 payment made to porn star Stormy Daniels before the 2016 election. Trump called the raid an “attack on our country.” Gold prices popped nearly $2.00 in pre-market hours to $1,342.00 per ounce. Investors remain cautious about ongoing geopolitical tensions around the globe. Even though the United States and China may be on the verge of a major trade breakthrough, geopolitical tensions remain high in the Middle East and in Russia. In fact, Money MorningResource Specialist Peter Krauth argues that the current situation is playing out to create a massive profit opportunity for gold investors in the months ahead. See his latest gold price forecast right here.
    Money Morning Insight of the Day

    Money MorningDirector of Technology & Venture Capital Research Michael A. Robinson has brought our readers some of the best ways to make money on technology stocks. But there’s always been one company that he’s largely avoided over his career… until now. You’re not going to believe what U.S. tech firm Michael says will unleash a wave of profits on investors in the future. Find out here.

  • [By Daniel Miller]

    In one of the bigger moves the automotive industry has seen in recent years, General Motors (NYSE:GM) had previously been reported to be in advanced talks with PSA Group to sell its long-struggling and unprofitable European operations. Both groups agreed to be in talks last week, but it appears there might be a little snag: pensions.

  • [By Jack Foley]

    Compare Tesla’s US story with the likes of Ford (NYSE:F)which mass produces its smaller cars in Mexico to avail of cheaper labor. Trump has already stated that he will slap an import tax on US manufacturers when they bring their cars back to the US for resale. If Trump is true to his word and this indeed takes place, this has to be good for the likes of Tesla. Remember, Tesla will have strong competition in EV’s from the likes of General Motors (NYSE:GM)and Ford in the next few years. So any edge Tesla can gain over its competitors will be grabbed with both hands.

  • [By WWW.KIPLINGER.COM]

    Alas, we have a lot of Ebenezer Scrooges out there in corporate America that either dont pay dividends at all or dont pay nearly enough of them. Realistically, not every company can be a dividend-paying powerhouse. Cyclical companies like General Motors Company (GM) or Ford Motor Company (F) have wildly erratic businesses and need to keep a little extra cash on hand for the lean years. (Of course, even then, weak share prices have made the pair of them look generous via nearly 5% yields.)

Top 10 Low Price Stocks To Own Right Now: The Middleby Corporation(MIDD)

Advisors’ Opinion:

  • [By Monica Gerson]

    Middleby Corp (NASDAQ: MIDD) is expected to post its quarterly earnings at $0.84 per share on revenue of $515.56 million.

    Jack in the Box Inc. (NASDAQ: JACK) is estimated to post its quarterly earnings at $0.70 per share on revenue of $360.22 million.

Top 10 Low Price Stocks To Own Right Now: Allied Motion Technologies, Inc.(AMOT)

Advisors’ Opinion:

  • [By Jim Robertson]

    On Friday, our Under the Radar Moversnewsletter suggestedsmall cap precision and specialty motion control stock Allied Motion Technologies (NASDAQ: AMOT) as a possible long position:

More Big Companies Beat Projections, But Wall Street Appears To Still Struggle

Companies keep churning out impressive earnings, but the market doesn’t seem to give them much credit. Instead, fear and caution remain the watchwords as the Dow Jones Industrial Average ($DJI) enters Wednesday on a five-session losing streak.

Morning Earnings Wrap

Boeing Co (NYSE: BA) became the latest member of the $DJI 30 to smash Wall Street analysts’ projections early Wednesday, firing up earnings per share of $3.64 vs. analysts’ consensus of $2.56. Revenue of $23.38 billion was more than $1 billion ahead of the $22.2 billion analysts had expected, and the company also raised its outlook. Strength in the commercial air division helped BA project a healthy sales picture.

Also on the earnings front, Twitter Inc. (NYSE: TWTR) topped analysts’ earnings projections and reported the second profitable quarter in the company’s history. It also handed out some bullish guidance and said daily active users grew 10 percent. The tech reporting season continues after the close when Facebook (FB) presents its Q1 results and tomorrow with Amazon.com, Inc. (NASDAQ: AMZN) and Microsoft Corporation (NASDAQ: MSFT).

It’s unclear whether any of the earnings momentum will spill into stocks today as the futures market came under pressure before the opening bell. Stocks overseas followed the U.S. lower after Tuesday’s big sell-off, with a key European index down about 1 percent.

Market Psychology Ruling the Day?

The hunt for 3 percent ended Tuesday as the 10-year yield reached that benchmark level. Soon after, stocks started to take a beating and sharply reversed early gains. At one point, the $DJI stumbled more than 600 points before recovering about one-third of those losses by the end of the day. Concerns about higher borrowing costs and rising commodity prices may be playing into the pressure.

Wall Street also appears to be grappling with a few psychological issues. Most notably, there’s trepidation around that 3 percent yield number, which didn’t hold for long Tuesday but remains within close range.  It definitely seems to be hurting the home builders, whose shares sold off despite strong housing and consumer confidence data this week. The fear is that some people might hear about higher rates and decide not to buy a house after all. Home builders are dealing with something that’s more of a psychological factor than a reality factor, as “3 percent” was made out to be the boogeyman of the markets. Historically, though, it’s not all that high.

Another psychological element is the idea touted by some analysts about earnings starting to peak. This might have been exacerbated by Dow component Caterpillar Inc. (NYSE: CAT) post-earnings conference call in which executives described the Q1 as a “high water mark.” Despite what some analysts called “phenomenal” earnings from the big machine maker, CAT shares fell more than 6 percent. Here we see the power of a conference call. This stock was higher before the call, but the remark led to immediate selling as some investors seemed to interpret the language as CAT saying it can’t get any better than this. However, the remark might not have come out as the company had intended.

More proof that one negative metric can hold back a big company’s stock surfaced with Alphabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL) Tuesday. Though the company reported a powerful quarter, the stock got stuffed as investors and analysts seemed focused more on higher-than-expected capital expenditures.

The "P" and the "E" in P/E

What it all comes down to is a certain level of confusion, which could hang around for a while. There seems to be a repricing of equities going on and despite this being an incredible earnings season so far, stock prices keep going down. The price-to-earnings (P/E) multiple remains a key factor to watch. “E” keeps getting higher and “P” keeps getting lower. People just don’t seem to be inclined to pay the same “P” any longer. It’s unclear where this might go, and sometimes these things take six to 12 months to sort themselves out. We’re right in the middle of it now.

Anyone looking for a silver lining might want to check out how VIX, the market’s most closely watched volatility indicator, acted during the last hours of the day. If you look closely, you’d see that it pulled back a bit in the last part of the session from intraday highs above 19.

Next Up: Autos

Attention could shift to the automotive sector when Ford Motor Company (NYSE: F) reports after the close today and General Motors Company (NYSE: GM) issues results before the open Thursday. There’s a truckload (pardon the expression) of things to consider ahead of not just these two behemoths but also Tesla Inc. (NASDAQ: TSLA), which according to the company’s web site reports May 2.

First, Ford is embarking on a huge program to save $14 billion, but, like all car companies, faces pressure to ignite its research and development (R&D) efforts to keep up with advances in electric and autonomous cars. At this point, F, which has lower margins than GM, is actually spending more money on R&D than its Detroit counterpart. Anyone who’s long F should consider listening to the company’s earnings call to see if there’s more clarity on where those savings might come from, and what they’re going to chop if it’s not R&D. At this point, one school of thought suggests that F is spending too much and not getting enough bang for its buck, but perhaps we’ll learn more Wednesday.

A question for GM, and maybe the U.S. auto industry as a whole, is what’s happening in China. Not long ago, 50 percent of GM’s revenue came from China, but now that’s below 40 percent. The company has closed some plants there. Is the Chinese market not growing at the pace we thought, or is Buick getting less popular over there? It seems unlikely that the latter would be true, so perhaps there’s something about the former that GM might address in its call, and, if that’s the case, might be something other U.S. car companies also have to address.

TSLA doesn’t report until next week, but there may be questions for the company about its own R&D after an analyst note came out recently speculating about TSLA’s development costs. Some analysts doubt if TSLA can achieve the Model 3 production it’s promised in the time frame the company has forecast. TSLA announced two temporary Model 3 plant shutdowns last week but said the shutdowns had been planned.

Though TSLA’s cars don’t need it, crude oil comes under a microscope this week as President Trump holds meetings in the White House with French President Emmanuel Macron. The Iran nuclear agreement is a key topic.

chart_4_251.jpg FIGURE 1: HOW THINGS CHANGE. The tech sector (candlestick) and financial sector (purple line), mapped here over the last year, led the charge through much of 2017 and right into the first month of 2018. Since then, these two former leaders have seemed to lose their way, and that’s one possible reason the market lacks direction.  Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Buyers Pay Up in Chicago

Some call Chicago, “The most American city.” That may or may not be the case, but the city’s real estate market in March seemed to reflect some of the broader American trends in housing. Existing home prices rose more than 5 percent nationwide last month, and in the city of Chicago prices hit an all-time high median of $314,000, according to Illinois Association of Realtors. That was up more than 6 percent from a year earlier. However, total sales around the country fell more than 1 percent year-over-year, and Chicago’s market also saw less turnover, with the number of sales falling more than 10 percent. In sum, Chicago seemed to be a microcosm of a housing market characterized by rising prices and falling supplies. That might sound like a good opportunity for home builders, but rising mortgage rates raise question marks.

ECB Up Next

One thing that’s arguably helped hold back U.S. yields is lower yields in Europe and Japan. However, the European Central Bank (ECB) has been removing some stimulus and meets again this week. An update is due Thursday morning. The Bank of Japan (BOJ) seems inclined to stay put with its current accommodation, BOJ Governor Haruhiko Kuroda told CNBC in a recent interview, saying “risks are skewed to the downside” in Japan’s economy. 

GDP Time Already?

Earnings grab most of the headlines this week, but don’t forget to watch Friday for the government’s first read on Q1 gross domestic product. The report is due out before the opening bell and could give investors a sense of whether the economy continued its solid run that started in Q2 of last year. The consensus among analysts is that things slowed down a bit between January and March, to around 2.1 percent, Briefing.com said. That’s down from the final Q4 read of 2.9 percent, which marked the third-consecutive quarter of growth around 3 percent. Typically, GDP is closely watched but doesn’t tend to move the market unless it comes in well above or below expected levels. The government does get two more cracks at the ball, so this isn’t the final word.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

Upcoming Earnings: Industrial Conglomerate GE Reports Friday Morning

Industrial conglomerate General Electric Company (NYSE: GE) is scheduled to report earnings before market open on Friday, Apr. 20.

CEO John Flannery has faced plenty of challenges since he took over in August 2017, working to streamline the massive company and improve transparency. In recent quarters, GE’s issues have been numerous and well publicized.

In the time that Flannery has been at the helm, GE has halved its dividend; it took a surprise $6.2 billion after-tax charge in Q4 2017 related to GE Capital’s insurance portfolio, while adding $15 billion to its reserves  for future payouts over the next seven years; and recently restated 2016 and 2017 financials, reducing earnings by $0.30 per share. The restated financials also included adjustments related to pensions, cash flows and income taxes.

Clearly, the company’s turnaround efforts, which include a multi-year plan to improve GE Power as well as exiting more than $20 billion worth of business over the next several years, are going to take time.

There have been some signs of progress from Flannery’s plan so far. When GE reported Q4 2017 results, it generated $9.7 billion in adjusted cash flow from operating activities for fiscal 2017, compared to guidance of $7 billion.

Since announcing plans to exit $20 billion in business, it has sold its industrial solution business in a $2.6 billion deal to ABB (ABB) and recently announced a $1.05 billion deal to sell healthcare IT businesses to private equity firm Veritas.  And Bloomberg reported that several companies are considering a bid for GE’s Jenbacher unit for more than $3 billion.

On tomorrow’s calls, analysts are likely to be digging in to get a better idea of restructuring progress.

GE Earnings

For Q1 2018, GE is expected to report adjusted EPS of $0.11 on revenue of $27.88 billion, according to third-party consensus estimates. In Q4 2017, revenue missed estimates, coming in at $31.4 billion versus expectations for $32.7 billion, and earnings also came up short by a penny at $0.27 per share after removing charges and one-time items.

GE previously lowered its earnings guidance for all of fiscal 2018 to a range of $1.00 to $1.07, but analysts seem to think that’s a little optimistic given they have an average estimate of $0.95. Out of 17 analyst ratings, earnings estimates range from $0.87 to $1.04 per share.

GE Options Trading Activity

Around GE’s upcoming report, options traders have priced in a 4.8% share price move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 76th percentile as of this morning. 

general-electric-ge-stock-chart-q1-2018.png
GE 1-YEAR CHART. GE shares have dropped from a 52-week high of $30.54 all the way to a new 52-week low of $12.73 on March 26. The stock has bounced a little bit off that level and has been trading around the mid-$13 range for the past few sessions. Chart source: thinkorswim® by TD Ameritrade.  Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

In short-term trading at the Apr. 20 monthly expiration and the next several weekly expirations, a lot of the activity has been concentrated at the 14 strike for both puts and calls, just out of the money. At the May 20 expiration, trading has also been heavier at the 14-strike call, while activity on the put side has been mostly at the 13 and 14 strikes. 

Overall during yesterday’s session, trading was heavier on the call side, with a put/call ratio of 0.476.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

What’s Coming Up

Next week brings results from many of the largest companies in the tech sector:

Google-parent Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) reports after the close Monday, Apr. 23
Twitter (NYSE: TWTR) reports before market open Wednesday, Apr. 25 and Facebook, Inc. (NASDAQ: FB) reports after the close the same day
Microsoft Corporation (NASDAQ: MSFT), Intel Corporation (NASDAQ: INTC) and Amazon.com, Inc. (NASDAQ: AMZN) report after the close Thursday, Apr. 26

In addition to the tech-heavy week, some of the other companies on the docket are Verizon Communications Inc. (NYSE: VZ), AT&T Inc. (NYSE: T), Ford Motor Company (NYSE: F), General Motors Company (NYSE: GM), Caterpillar Inc (NYSE: CAT), Boeing Co (NYSE: BA), Chevron Corporation (NYSE: CVX) and Exxon Mobil Corporation (NYSE: XOM). If you have time, make sure to check out today’s market update for a look at what else is going on.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

For Tesla, Less Is More

Page 14 of Tesla’s (NASDAQ:TSLA) 2017 10-K states:

Segment Information

We operate as two reportable segments: automotive and energy generation and storage.

The automotive segment includes the design, development, manufacturing, and sales of electric vehicles. The energy generation and storage segment includes the design, manufacture, installation, and sale or lease of stationary energy storage products and solar energy systems, and sale of electricity generated by our solar energy systems to customers.

As stated, Tesla has two reportable business segments, the automotive segment and the energy generation and storage segment.

What does “Full Disclosure” mean to the SEC and to the Financial Accounting Standards Board (FASB, which governs the accounting standards that public companies must comply with)? It is a basic Generally Accepted Accounting Principle (GAAP). As stated on page 1,314 of “Intermediate Accounting by Kieso, Weygandt, and Warfield, 2010:

The full disclosure principle calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader.”

The same page also states:

For example, recently the SEC required companies to provide expanded disclosures about their contractual obligations. In light of the off-balance sheet accounting frauds at companies like Enron, the benefits of these expanded disclosures seem fairly obvious to the investing public.”

I’ve stated it a number of times and I’ve seen other posters on SA state the same thing, and that is that Tesla does not seem transparent enough with its financial reporting. That thought came into focus when I thought about the company’s reportable business segments. I knew there was a specific standard or two that governed segment reporting. So, I decided to research the matter and see what information was required to be reported and then compare that with what Tesla reported, as well as what other companies, with more than one reportable segment reported.

The accounting standard governing business segment reporting is Statement of Financial Accounting Standards (SFAS) 131: Disclosures About Segments of an Enterprise and Related Information. SFAS 131 replaced SFAS 14: Financial Reporting for Segments of a Business Enterprise in 1997. The reason for the updated standard on business segment reporting was because financial analysts found SFAS 14 inadequate. (See paragraphs 42 and after of the Standard). They wanted financial statement data to be disaggregated to a greater degree than required by SFAS 14.

With FASB changing over to the accounting standards codification (ASC), this standard is now ASC 280: Segment Reporting, but it’s the same content as SFAS 131. Because the content is identical, I will refer to text from SFAS 131, instead of ASC 280. The codification is harder to access because you have to register at FASB’s website, so I can’t link to the text with it, whereas SFAS 131’s text is readily accessible.

SFAS 131 requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that’s evaluated regularly by the chief operating decision maker (CODM) in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments.

The reason that SFAS 131 was created was to:

Better understand the enterprise’s performance through expanded disclosures. Better assess its prospects for future net cash flows. Make more informed judgments about the enterprise as a whole.

It appears that Tesla meets the technical requirements of SFAS 131: Disclosures About Segments of an Enterprise and Related Information, but has failed to comply with the spirit of the standard. That’s my opinion after researching this subject.

SFAS 131 requires that a public business enterprise report a measure of profit or loss, certain specific revenue and expense items, and assets by segment. It also requires reconciliations of total segment revenues, total segment profit or loss, total segment assets, and other amounts disclosed for segments to corresponding amounts in the enterprise’s general-purpose financial statements. Information about the revenues derived from the enterprise’s products or services, about the countries in which the enterprise earns revenues and hold assets, and about major customers also is required to be reported, regardless of whether that information is used in making operating decisions.

An operating segment of an enterprise is defined by SFAS 131, paragraph 10 as:

10 …a component of an enterprise:

a. That engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise).

b. Whose operating results are regularly reviewed by the enterprise’s CODM to make decisions about resources to be allocated to the segment and assess its performance, and

c. For which discrete financial information is available.”

Then paragraph 12 states:

12. The term chief operating decision maker identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the segments of an enterprise.”

This means that the CODM, as defined in the previous paragraph, may be a group of persons and not just one person.

The following defines what a “reportable business segment” is which requires disaggregated segment reporting:

Quantitative Thresholds

18. An enterprise shall report separately information about an operating segment that meets any of the following quantitative thresholds:

a. Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all reported operating segments.

b. The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of (1) the combined reported profit of all operating segments that did not report a loss or (2) the combined reported loss of all operating segments that did report a loss.

c. Its assets are 10 percent or more of the combined assets of all operating segments.

So, now we know what business segments are and which business segments must be reported separately from consolidated amounts.

I’m including here the SEC’s explanation of why it changed its guidance to conform to SFAS 131.

Let’s now examine, from SFAS 131, what is required to be disclosed by reported operating segments:

Disclosures

25. An enterprise shall disclose the following:

a. General information as described in paragraph 26

b. Information about reported segment profit or loss, including certain revenues and expenses included in reported segment profit or loss, segment assets, and the basis of measurement, as described in paragraphs 27-31

c. Reconciliations of the totals of segment revenues, reported profit or loss, assets, and other significant items to corresponding enterprise amounts as described in paragraph 32

d. Interim period information as described in paragraph 33.

26. An enterprise shall disclose the following general information:

a. Factors used to identify the enterprise’s reportable segments, including the basis of organization (for example, whether management has chosen to organize the enterprise around differences in products and services, geographic areas, regulatory environments, or a combination of factors and whether operating segments have been aggregated).

b. Types of products and services from which each reportable segment derives its revenues.”

Information about Profit or Loss and Assets

27. An enterprise shall report a measure of profit or loss and total assets for each reportable segment. An enterprise also shall disclose the following about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker:

a. Revenues from external customers

b. Revenues from transactions with other operating segments of the same enterprise

c. Interest revenue

d. Interest expense

e. Depreciation, depletion, and amortization expense

f. Unusual items as described in paragraph 26 of APB Opinion No. 30, Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions

g. Equity in the net income of investees accounted for my the equity method

h. Income tax expense or benefit

i. Extraordinary items

j. Significant noncash items other than depreciation, depletion, and amortization expense.

28. An enterprise shall disclose the following about each reportable segment if the specified amounts are included in the determination of segment assets reviewed by the chief operating decision maker:

a. The amount of investment in equity method investees.

b. Total expenditures for additions to live-lived assets other than financial instruments, long-term customer relationships of a financial institution, mortgage and other servicing rights, deferred policy acquisition costs, and deferred tax assets.

Now we come to a very important part of the standard. It’s this paragraph that seems to be a loophole for Tesla to circumvent what was intended by SFAS 131.

Measurement

29. The amount of each segment item reported shall be the measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segment and assessing its performance. Adjustments and eliminations made in preparing an enterprise’s general-purpose financial statements and allocations of revenues, expenses, and gains or losses shall be included in determining reported segment profit or loss only if they are included in the measure of the segment’s profit or loss that’s used by the chief operating decision maker. Similarly, only those assets that are included in the measure of the segment’s assets that’s used by the chief operating decision maker shall be reported for that segment. If amounts are allocated to reported segment profit or loss or assets, those amounts shall be allocated on a reasonable basis.”

Are you still with me? It is a lot to digest. There is more, but I want to stop here and begin the analysis of Tesla’s disclosures. Tesla reports its business segment information under Note 23 of the 2017 10-K, pages 117 and 118:

Note 23 Segment Reporting and Information about Geographic Areas

We have two operating and reportable segments: (i) automotive and (ii) energy generation and storage. The automotive segment includes the design, development, manufacturing and sales of electric vehicles. Additionally, the automotive segment is also comprised of services and other, which includes after-sales vehicle services, used vehicle sales, powertrain sales and services by Grohmann. The energy generation and storage segment includes the design, manufacture, installation and sales of solar energy generation and energy storage products. Our CODM does not evaluate operating segments using asset or liability information. The following table presents revenues and gross margins by reportable segment (in thousands):”

Note on page 117 that Tesla’s “measure of profit or loss” which they use “for purposes of making decisions about allocating resources to the segment and assessing its performance” is Gross Profit.

At this point I have to ask: Really? You mean to say that Mr. Musk and Mr. Ahuja, or whoever the CODM is, meet with the people responsible for the two business segments to review operating performance and the only measure of profit or loss that they review is Gross Profit? Are you serious?

I mean, you have business segment operating expenses like:

Payroll for design, development, manufacturing, and sales. SG&A for both operating segments, like utilities, telephones both stationary and mobile, internet usage charges, and general office supplies for administrative employees and sales employees. Depreciation for general purpose office equipment like computers, printers, telephones, desks, chairs. Depreciation on the buildings that house administrative and sales employees. Amortization on computer software used to manage both segments. Marketing costs Other things I have not mentioned or thought of.

All of these costs can be easily identified with either the Automotive segment or the Energy Generation and Storage segment. I am certain that Tesla’s CODM reviews these business segment costs and reviews operating income or loss by business segment in order to assess operating performance for each segment. But, SFAS 131 doesn’t define what the term “a measure of profit or loss” is. Therefore, the Standard provides Tesla with a loophole whereby they are not required to disclose operating income or loss by business segment. As a consequence, in Tesla’s case the new Standard provides a loophole whereby less disaggregated financial information may be disclosed than the old one. That’s exactly the opposite of what was intended with the issuance of the new Standard.

To support my claim that Tesla’s CODM looks at details of operating performance on a segment level basis that go well beyond the Gross Profit level, Take a look at this article from October 25, 2017.

” Tesla said at the time of the acquisition it would cut costs by $150 million in the first full year after closing the deal, which will occur November 21, 2017. SolarCity cofounders Peter and Lyndon Rive have both left the company since it was acquired by Tesla. The Rives are cousins of Tesla CEO Elon Musk. “

The word “synergies,” however, means cost cutting, and at least some of the cost cutting will come in the form of layoffs.

Like all companies, Tesla conducts an annual performance review during which a manager and employee discuss the results that were achieved, as well as how those results were achieved, during the performance period. This includes both constructive feedback and recognition of top performers with additional compensation and equity awards, as well as promotions in many cases. As with any company, especially one of over 33,000 employees, performance reviews also occasionally result in employee departures. Tesla is continuing to grow and hire new employees around the world.”

SFAS 131 provides an example of Segment Information to be reported, in paragraph 122:

Diversified Company evaluates performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses and foreign exchange gains and losses.”

Did you get that? The example in SFAS 131, itself, uses what to evaluate performance? Operating Income or Loss.

The example company also has a finance segment that meets the reportable segment criteria. Tesla has a finance division in its Auto Segment. That division doesn’t meet the reportable segment criteria? Interesting. Very interesting.

IMO, Tesla does, in fact, assess business segment performance at the operating income or loss level. My own accounting work experience tells me that. Common sense tells you that. I was born at night, but not last night. So, even though Tesla meets the technical requirements of SFAS 131, by reporting “a measure of profit or loss,” the company fails to comply with the very intent of the standard, in my opinion.

There’s another matter, also, the reporting of segment assets. Tesla doesn’t report their assets by segment, but only by a consolidated total. Again, it appears that Tesla meets the technical requirements of SFAS 131, but fails to comply with its spirit. Within Note 23 of the 2017 10-K, on page 117, Tesla states: Our CODM does not evaluate operating segments using asset or liability information.

Paragraph 29 of the standard states: “The amount of each segment item reported shall be the measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segment and assessing its performance. “

So, with Tesla’s statement, they comply with the technical requirements of the standard since, according to the company, the CODM doesn’t evaluate operating segments using asset or liability information.

But, is it really true that Tesla doesn’t evaluate segment operating performance or the allocation of resources (assets) using asset information? Has Tesla consolidated SolarCity and reduced the amount of assets under its management, as a result? Yes, they have. Does Tesla continue to monitor and manage the amount of its assets, company wide? Obviously, they do. And what about “capex?” So if this isn’t reviewing resource allocation (assets) and making decisions about resource allocation (assets), then I’m from Mars. I think any public company manages the allocation of resources using asset information, as can readily be seen by the asset information provided by other enterprises with more than one segment. Ford (NYSE:F), GM (NYSE:GM), John Deere (NYSE:DE), GE (NYSE:GE), Johnson & Johnson (NYSE:JNJ), Caterpillar (NYSE:CAT), and every other company that I’ve researched, that has more than one business segment, provides operating income, asset information, depreciation, and other information by segment. But not Tesla. I find it hard to believe that Tesla doesn’t review and evaluate operating performance or resource allocation with asset information.

Let’s go on, now, and review a few other paragraphs of the standard.

32. An enterprise shall provide reconciliations of all of the following:

a. The total of the reportable segment’s revenues to the enterprise’s consolidated revenues.

b. The total of the reportable segments’ measures of profit or loss to the enterprise’s consolidated income before income taxes, extraordinary items, discontinued operations, and the cumulative effect of changes in accounting principles.

c. The total of the reportable segments’ assets to the enterprise’s consolidated assets.

d. The total of the reportable segments’ amounts for every other significant item of information disclosed to the corresponding consolidated amount.

All significant reconciling items shall be separately identified and described. For example, the amount of each significant adjustment to reconcile accounting methods used in determining segment profit or loss to the enterprise’s consolidated amounts shall be separately identified and described.

Tesla includes a reconciliation of its reportable segment revenues to consolidated revenues. But I don’t see a reconciliation of the reportable segments’ profit or loss to the consolidated income or loss before income taxes, extraordinary items, etc. And a reconciliation of the reportable segments’ assets to consolidated assets is missing.

Then there’s paragraph 38 about reporting revenues from external customers by geographic region, and long-lived assets by geographic region. Tesla complies with this.

Then there’s paragraph 39:

Information about Major Customers

39. An enterprise shall provide information about the extent of its reliance on its major customers. If revenues from transactions with a single external customer amount to 10 percent or more of an enterprise’s revenues, the enterprise shall disclose that fact, the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues. The enterprise need not disclose the identity of a major customer or the amount of revenues that each segment reports from that customer.

Tesla doesn’t provide any information in this regard, so, apparently it doesn’t derive at least 10 percent of its revenues from just one customer.

So, that’s the standard and you can review it at FASB’s website here.

Let’s further evaluate the adequacy of Tesla’s disclosures about its business segments by revealing what was intended when SFAS 131 replaced SFAS 14.

First, let’s review the statements of the sole FASB Board Member (there are seven board members) who dissented from the issuance of SFAS 131:

This Statement was adopted by the affirmative votes of six members of the Financial Accounting Standards Board. Mr. Leisenring dissented.

Mr. Leisenring dissents from the issuance of this Statement because it does not define segment profit or loss and does not require that whatever measure of profit or loss is reported be consistent with the attribution of assets to reportable segments.

By not defining segment profit or loss, this Statement allows any measure of performance to be displayed as segment profit or loss as long as that measure is reviewed by the chief operating decision maker. Items of revenue and expense directly attributable to a given segment need not be included in the reported operating results of that segment, and no allocation of items not directly attributable to a given segment is required. As a consequence, an item that results directly from one segment’s activities can be excluded from that segment’s profit or loss. Mr. Leisenring believes that, minimally, this Statement should require that amounts directly incurred by or directly attributable to a segment be included in that segment’s profit or loss and that assets identified with a particular segment be consistent with the measurement of that segment’s profit of loss.

Mr. Leisenring supports trying to assist users as described in paragraph 3 of this Statement but believes it is very unlikely that will be accomplished, even with the required disclosures and reconciliations to the entity’s annual financial statements, because of the failure to define profit or loss and to impose any attribution or allocation requirements for the measure of profit or loss.

Mr Leisenring supports the management approach for defining reportable segments and supports disclosure of selected segment information in condensed financial statements of interim periods issued to shareholders. Mr. Leisenring believes, however, that the definitions of revenues, operating profit or loss, and identifiable assets in paragraph 10 of Statement 14 should be retained in this Statement and applied to segments identified by the management approach.

I concur with Mr. Leisenring. Without defining profit or loss, companies like Tesla can skirt the spirit and intent of the new standard, as we see being done in Tesla’s 10-K, in my opinion.

So, I have a question. Is there any “material” information which Note 23 of Tesla’s financials discloses that isn’t contained within its Consolidated Income Statement? Very little, in my opinion. The intent of SFAS 131 was that MORE disaggregated financial data would be disclosed than was disclosed under SFAS 14. That isn’t the case with Tesla.

Here is the intent of the new Standard, in paragraphs 42 through 45:

Background Information

42. FASB Statement No. 14, Financial Reporting for Segments of a Business Enterprise, was issued in 1976. That Statement required that business enterprises report segment information on two bases: By industry and by geographic area. It also required disclosure of information about export sales and major customers.

43. The Board concluded at the time it issued Statement 14 that information about components of an enterprise, the products and services that it offers, its foreign operations, and its major customers is useful for understanding and making decisions about the enterprise as a whole……

44. In its 1993 position paper, Financial Reporting in the 1990s and Beyond, the Association for Investment Management and Research (AIMR) said:

(Segment data) is vital, essential, fundamental, indispensable, and integral to the investment analysis process. Analysts need to know and understand how the various components of a multifaceted enterprise behave economically. One weak member of the group is analogous to a section of blight on a piece of fruit – it has the potential to spread rot over the entirety. Even in the absence of weakness, different segments will generate dissimilar streams of cash flows to which are attached disparate risks and which bring about unique values. Thus, without disaggregation, there is no sensible way to predict the overall amounts, timing, or risks of a complete enterprise’s future cash flows. There is little dispute over the analytic usefulness of disaggregated financial data. (Pages 59 and 60).

45. Over the years, financial analysts consistently requested that financial statement data be disaggregated to a much greater degree than it is in current practice. Many analysts said that they found Statement 14 helpful but inadequate. In its 1993 position paper, the AIMR emphasized that:

There is no disagreement among AIMR members that segment information is totally vital to their work. There also is general agreement among them that the current segment reporting standard, Financial Accounting Standard No. 14, is inadequate.

Then, paragraph 93 of SFAS 131 states:

Although this Statement requires disclosure of more information about an individual operating segment than Statement 14 required for an industry segment, ….”

Clearly, what was intended with the new Standard was more disaggregated data, not less. But, with Tesla, less is more. I give Tesla a grade of F for this section of their 10-K. Their Business Segments are something of a “black box” due to the lack of disclosure about them.

In Contrast, I present John Deere’s Disclosure Note on Reported Segments. It’s three pages long:



I’ll wrap up the article with this. Where’s the beef? When businesses become materially diversified, investors and investment analysts want more information about the details behind the consolidated financial statements. In particular, they want Income Statement, Balance Sheet, and Cash Flow information on the individual segments that compose the total income or loss figures.

Much information is hidden in the consolidated numbers. If an investor or an analyst has only the consolidated figures, he or she cannot tell the extent to which differing product lines contribute to the company’s profitability (or lack of), risk and growth potential. Earnings of the individual segments enable investors and the analyst to evaluate the differences between segments in growth rate, risk, and profitability, and to forecast consolidated profits. SFAS 14 was written to better serve the investor and analysts by requiring segmented information be made available, including operating income or loss and the assets contributing to that income or loss. SFAS 131 replaced SFAS 14 so that even more and better segmented data would be made available. Tesla defeats the purpose for which SFAS 131 was issued, since it provides less information about operating income and assets (no data) than it would have been required to report under SFAS 14.

In short, take away Note 23 of Tesla’s 10-K and little material information has been omitted, meaning Note 23 tells us little more about the business segments than if the Note were not present.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may buy puts on Tesla when and if the price reaches $350
It is highly risky to short this stock. Please understand the risks fully before doing so.

2018 IPO Prospects: Lyft Appears To Be Changing Gears To List

According to a Goldman Sachs report, the global ride-hailing market is expected to grow from $36 billion in 2017 to $285 billion by 2030. The average number of ride-hailing trips a day globally are expected to grow from 15 million in 2017 to 97 million by 2030. The ride-hailing companies are expected to charge an average 23% commission on the gross sales, translating to net revenues of $65 billion by 2030 for the industry. While Uber (Private:UBER) continues to remain the market leader in the industry, its recent troubles have helped drive usage for competitors, such as Lyft (Private:LYFT), to higher levels. Lyft may even beat Uber to an IPO listing this year.

Lyft’s Growth

Lyft, still largely focused in the US, has grown significantly during the past year. According to its Co-Founder and President John Zimmer, Lyft more than doubled the 162.6 million rides it provided in 2016. It is now available in all the 50 US states. Last year, Lyft also made its first international presence when it began operating its service in Toronto, Canada. Lyft has clearly benefited from all the turmoil at Uber. Here is an interesting infographic, courtesy recode, that shows how Lyft made big advances in San Francisco and New York, when compared with Uber.

Besides market expansion for the ride-sharing service, Lyft also has been actively focused on the autonomous driving market. Last year, Lyft entered into several partnerships with automakers such as Ford (NYSE:F), Tata Motors’ (NYSE:TTM) Jaguar Land Rover, and General Motors (NYSE:GM) to test self-driving vehicles in the network. It launched an open platform that is designed to give these automakers and tech companies the ability to work on self-driving cars that will be accessible to its ride-sharing network.

It officially launched the service last month in Boston when it sent autonomous vehicles, developed by the startup NuTonomy, to pick passengers in Boston’s Seaport district. The riders are randomly paired with one of NuTonomy’s self-driving cars when they use the Lyft app in the Seaport area. The car comes with a driver behind the wheel who is ready to take control, when needed. The partnership will help establish user confidence in the driverless car model along with helping improve the performance through feedback from pilot participants. Later this month, Lyft will also launch a similar service for the Consumer Electronics Show happening in Las Vegas. Attendees will be able to ride the autonomous cars on 20 pre-defined routes and destinations. The service will be provided in collaboration with Aptiv, which will work on the automated driving vehicles, while Lyft will take on the dispatch.

Lyft is not the only ride-sharing service to offer autonomous cars. Uber already has the service running in Pittsburgh and Phoenix. But Uber is being sued over its autonomous driving technology by Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and has also been involved in a few traffic incidents in these markets.

Lyft’s Financials

Lyft’s user growth has translated to higher revenues in 2017. While the company still does not disclose detailed financials, recent reports revealed that its gross revenues grew from $150 million in the first half of 2016 to $483 million for the first half of 2017. During the same period, losses have reduced from $283 million to $206 million. During the same period, Uber is estimated to have earned $3 billion in revenues with losses of $2 billion.

Lyft has been venture funded so far and has raised $4.2 billion from investors including Fidelity Management & Research Company, Ontario Teachers’ Pension Plan, Capital G, Icahn Enterprises, Rakuten, Coatue Management, Andreessen Horowitz, Founders Fund, Mayfield Fund, FLOODGATE, K9 Ventures, and fbFund. Its last funding round was held in December 2017 , when it raised $500 million at a valuation of $11.5 billion from investors including Fidelity Management & Research Company and Ontario Teachers’ Pension Plan. Valuation has grown steadily from $10 billion back in October 2017 and $7.5 billion in April 2017. It is still a far cry from Uber’s valuation of $68 billion.

Many believe that Lyft is very close to going public as it is about to select its IPO advisors to help it list. It also added Kristina Omari as its first-ever vice president of corporate development and customer relations – a move expected to be part of the IPO initiative.

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